Do you know your target enough to develop a tiered pricing model?

In the SaaS business, price is part of the marketing strategy. It contributes to attract new users and drive sales.

This is the reason why the pricing strategy is so important for software vendors.

If you are wondering whether the tiered pricing model is right for your business, in this article you will find the answer to your questions.

What is the tiered pricing model strategy?

In the tiered pricing model strategy, vendors create different tiers with different combinations of features and they offer them at different pricing points.

Most customers are already familiar with this kind of pricing, so they understand that they will get different features/services for each pricing point.

Still, many vendors confuse the tiered pricing model with the feature based. However, while in the feature based pricing model the more you pay and the more features you get, in the tiered pricing model you have different features/services in each plan.

Typically, companies develop a tiered pricing model when they know the different needs of their targets and are able to define which features are crucial for each one. It is not surprising that Hubspot, one of the most popular marketing automation softwares, uses this pricing model.

The starting point for vendors interested in this strategy is defining the buyer personas for their service.

In this way, you will be able to understand what your customers are looking for, their pains and the features that you need to include in each plan. But be careful: if you add the wrong features to each plan you might end up without customers: your product might be great, but users will not be interested in how you wrapped the features up.

Pros and cons of the tiered pricing model

Pros

Personalized plans

The tiered pricing model allows to tailor different plans to better suit the needs of different targets.

Wide target

Creating different plans with different pricing points, you will be able to attract more customers. You will target companies that could invest 200$ per month and professionals that could invest 20$ per month. All with the same product.

Maximize revenues

With different plans according to the target, you can maximize the revenues generated from each customer: 50$ could be too much for users that are willing to pay $30, but you could get 100$ from users willing to spend 150$.

Cons

Confusion

If you create too many tiers, users may feel confused. Try to keep the choice simple and clear.

Too many targets

Creating different plans for different targets is cool, but keep focused on your goals: you cannot address every single potential target in the market.

All you can use

You need to pay attention to those users that consume a lot of your resources. If you are not structured enough, you might need to establish limits to features/services.

Cloudesire is a brokering and monetisation platform that enables automated SaaSification and immediate distribution of any kind of application and service, across any cloud, with any commercial arrangement.